Question

Comprehensive Accounting Cycle Review 6 On December 1, 2017, Sarasota Corp. had the account balances shown below. Debits Credits Cash $5,230 Accumulated Depreciation—Equipment $1,600 Accounts Receivable 3,570 Accounts Payable 3,230 Inventory (3,100 x $0.60) 1,860 Common Stock 10,900 Equipment 23,000 Retained Earnings 17,930 $33,660 $33,660 The following transactions occurred during December. Dec. 3 Purchased 4,100 units of inventory on account at a cost of $0.73 per unit. 5 Sold 4,500 units of inventory on account for $0.90 per unit. (It sold 3,100 of the $0.60 units and 1,400 of the $0.73.) 7 Granted the December 5 customer $180 credit for 200 units of inventory returned costing $150. These units were returned to inventory. 17 Purchased 2,000 units of inventory for cash at $0.70 each. 22 Sold 1,800 units of inventory on account for $0.86 per unit. (It sold 1,800 of the $0.73 units.) Adjustment data: 1. Accrued salaries and wages payable $460. 2. Depreciation on equipment $210 per month. 3. Income tax expense was $240, to be paid next year. 1.Journalize the December transactions and adjusting entries, assuming Sarasota Corp. uses the perpetual inventory method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) 2. Enter the December 1 balances in the ledger T-accounts and post the December transactions. (Post entries in the order of journal entries presented above.) 3.Prepare an adjusted trial balance as of December 31, 2017. 4.Prepare an income statement for December 2017. 5.a. Compute ending inventory and cost of goods sold under FIFO, assuming Sarasota Corp. uses the periodic inventory system. 5b. Compute ending inventory and cost of goods sold under LIFO, assuming Sarasota Corp. uses the periodic inventory system.

Answer 1

1.

Dec-3

Inventory Dr. 2993

Accounts payable Cr 2993

(Being purchased 4100 units @.73 /unit)

Dec-5

Accounts Receivable Dr. 4050

Sales Cr. 4050

(Being sold 4500 units @.90 per unit)

Cost of good Sold Dr. 2882

Inventory Cr. 2882

(Being inventory issued to cost of goods sold 3100 Units @.60 & 1400 Units .73)

Dec-7

Sales     Dr. 180

Accounts receivable Cr. 180

(Being sales return recorded)

Inventory Dr. 150

Cost of goods sold Cr. 150

(Being the cost of goods sold reversed for the returned goods at cost price)

Dec-17

Inventory Dr. 1400

Account payable Cr 1400

(Being goods purchased 2000 units @.70 unit)

Dec-22

Accounts Receivable Dr. 1548

Sales Cr 1548

(Being goods sold 1800 units @.86 per unit)

Cost of goods sold Dr 1314

Inventory Cr. 1314

(Being inventory issued to cost of goods sold 1800 units @.73/Unit)

Adjustment Entries

31 Dec

Salary Dr. 460

Salary payable Cr. 460

(Being salary payable for the month)

Depreciation Dr. 210

Accumulated Depreciation Cr. 210

(Being depreciation provided )

Income Tax Dr. 240

Income Tax Payable Cr. 240

(Being income Tax Payable)

2.

Cash
Date	Particulars	Dr Amount	Date	Particulars	Cr. Amount
01/12/17	Balance B/D	5230
			31/12/17	Balance C/D	5230
		5230			5230
Account Receivable
Date	Particulars	Dr Amount	Date	Particulars	Cr. Amount
01/12/17	Balance B/D	3570	07/12/17	Sales(Return)	180
05/12/17	Sales	4050
22/12/17	Sales	1548	31/12/17	Balance C/D	8988
		9168			9168
Inventory
Date	Particulars	Dr Amount	Date	Particulars	Cr. Amount
01/12/17	Balance B/D	1860	05/12/17	cost of Goods sold	2882
03/12/17	Accounts payable	2993	22/12/17	cost of Goods sold	1314
07/12/17	Cost of Good Sold	150
17/12/17	Accounts payable	1400	31/12/17	Balance C/D	2207
		6403			6403
Equipment
Date	Particulars	Dr Amount	Date	Particulars	Cr. Amount
01/12/17	Balance B/D	23000
			31/12/17	Balance C/D	23000
		23000			23000
Accumulated Depreciation
Date	Particulars	Dr Amount	Date	Particulars	Cr. Amount
			01/12/17	Balance B/D	1600
			31/12/17	Depreciation	210
31/12/17	Balance C/D	1810
		1810			1810
Common Stock
Date	Particulars	Dr Amount	Date	Particulars	Cr. Amount
			01/12/17	Balance B/D	10900
31/12/17	Balance C/D	10900
Retained Earning
Date	Particulars	Dr Amount	Date	Particulars	Cr. Amount
			01/12/17	Balance B/D	17930

Accounts Payable
Date	Particulars	Dr Amount	Date	Particulars	Cr. Amount
			01/12/17	Balance B/D	3230
			03/12/17	Inventory	2993
			17/12/17	Inventory	1400
31/12/17	Balance C/D	7623
		7623			7623

3

Trial Balance as on 31st Dec 2017
	Dr	Cr
Cash	5230
Account Receivable	8988
Inventory	2207
Equipment	23000
Depreciation	210
Accounts Payable		7623
Accumulated Depreciation		1810
Common Stock		10900
Retained Earning		17930
Sales		5418
Cost of goods sold	4046
Income tax	240
Income tax payable		240
Salary payable		460
Salary & Wages	460
	44381	44381

4.

Net income statement for Dec 2017	$
Gross Sales	5598
Less Sales return	-180
	5418
Cost of goods sold	-4046
Gross profit	1372
Salaries & Wages	-460
Depreciation	-210
Net income before tax	702
Income tax	-240
Net income	462

5. a) The cost of goods sold and closing Inventory values will remain the same as of the perpetual system as the both methods follow the FIFO method . So cost of Good sold -  4046 & inventory value as of 31/12/2017 would be 2207

5 b)

Under LIFO method , the cost of goods sold

Last lot (1800*.70) 1260

First lot - 4100 units - (200*.70)+200*.75+(4100*.73)= 3283

Total Cost of goods sold = 1260+3283 = $4543

Inventory value - 3100*.6 = $1860